We analyze the welfare properties of derivative securities that profit-maximizing issuers offer to investors who have inferior information and neglect the information content of the offer. To capture the markets for structured securities and exotic exchange-traded funds, we assume that issuers...

We study the properties of a profit-maximizing monopolist's optimal price distribution when selling to a loss-averse consumer, where (following Kőszegi and Rabin (2006)) we assume that the consumer's reference point is her recent rational expectations about the purchase. If it is close to...

A standard model of addictive process is Becker and Murphy's rational addiction' model, which has the key empirical prediction that the current consumption of addictive goods should respond to future prices, and the key normative prediction that the optimal government regulation of addictive...

We develop a model of fragile self-esteem — self-esteem that is vulnerable to objectively unjustified swings — and study its implications for choices that depend on, or are aimed to protect, one's self-view. We assume that a person's self-esteem is determined by sampling from his store of...